Ford Motor Company (NYSE:F) has recently caught the attention of analysts, particularly those at Morgan Stanley, who have made it their top pick in the U.S. automobile sector.
This enthusiasm stems from Ford’s evolving electric vehicle (EV) strategy, which suggests a significant shift from their current approach. Analyst Adam Jonas highlights that Ford is becoming increasingly aware of the need for substantial changes in its EV strategies.
The company is expected to dial back its vertical integration efforts and instead focus on partnerships and collaborations, notably with Chinese firms, mirroring Tesla’s recent moves.
Recent developments
In a bid to address the underwhelming demand for electric vehicles, Ford is making a significant policy change by ending its “EV-certified” program. This program previously required dealerships to invest up to $1 million to sell EVs.
By July 1, all Ford dealerships will be eligible to sell electric vehicles, doubling the number of eligible dealerships to 2,800. Ford’s electric vehicle unit reported a substantial loss of $1.3 billion in Q1, contrasting with the Ford Blue unit, which saw a 13% increase in sales, amounting to $21.8 billion.
Ford’s Chief Financial Officer, John Lawler, has outlined a strategy aimed at improving capital efficiency and enhancing profit margins. Speaking at the Deutsche Bank Global Auto Industry conference, Lawler emphasized the importance of partnerships and cost reductions.
Ford is on track to achieve $2 billion in cost savings this year, primarily through material and manufacturing efficiencies.
These efforts come at a crucial time, as price reductions in the EV segment have been significant, and the company continues to face cost pressures.
Ford’s efforts to enhance EV profitability have led the company to seek cost reductions from its suppliers. Chief Supply Chain Officer Liz Door has urged suppliers to cut costs and ensure efficient manufacturing operations. T
May 2024 was a strong month for Ford, with U.S. vehicle sales rising by 11.2% compared to the previous year. Electric vehicle sales surged by 64.7%, and hybrid vehicle sales saw a similar increase of 64.5%.
Truck sales, which represent a significant portion of Ford’s revenue, also experienced an 11.2% increase. Despite a slight decline in F-Series truck sales, the overall growth in vehicle sales underscores Ford’s resilience and market position.
Analyst optimism and long-term potential
Ford has also garnered positive attention from Wall Street, with Sanford C. Bernstein initiating coverage with an ‘Outperform’ rating and $16 price target.
Analyst Daniel Roeska believes that Ford’s investments in electric vehicles will eventually strengthen its financial performance, complementing its already robust pickup truck and SUV business.
The firm’s long-term outlook is bolstered by expectations of operating leverage and profitability in the EV unit. Furthermore, Ford is anticipated to narrow its 2024 guidance, which could serve as a catalyst for the stock, driving it higher in the medium term.
Navigating Valuation and Market Conditions
When assessing Ford’s valuation, it is crucial to consider both its automotive and financial components. With an adjusted free cash flow of $4.4 billion on average, analysts believe Ford’s current market cap presents a fair value, especially in light of its cyclical nature.
The company’s tangible book value per share and steady balance sheet further support its investment thesis.
However, given the competitive landscape and market dynamics, investors must weigh these factors carefully when considering Ford as a long-term investment.
Having explored the recent developments, financial performance, and strategic initiatives it’s time to turn our attention to the charts.
Discerning the stock’s recent price action will be critical in understanding whether Ford is poised to dip below the $10 mark once again or if it can climb higher.
Bullish entry opportunity at $11.80
On Ford’s short-term chart, we can see that the stock entered a downtrend after making its recent swing high at $13.95 in April.
However, it has found support near the $11.50 level, which is very near to the 38.2% Fibonacci retracement from the previous swing low and high at $11.30.
This presents a very low-risk entry for investors who are bullish on the stock. They can purchase it at current levels near $11.80 while keeping a stop loss at $11.25.
If the stock again manages to find support above $11.3, we can see it bouncing back above the $13 level in the coming weeks, where short-term traders can book profits.
Traders who continue to remain bearish on the stock must wait for it to fall below $11.30 where they can initiate fresh short positions with a stop loss at $12.52 and book profits below $9.
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